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17.47 With that, we're wrapping up Debt Crisis Live for today. Thanks for reading and commenting.

17.46 An uninspiring end to today's trading session on the markets. The FTSE 100 is up just 4.68 points to 5845.92 while France's CAC is down 0.43pc to 3438.26 and Spain's IBEX is off 0.84pc at 7150.2.

Ishaq Siddiqi at ETX Capital Markets wrote:

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European financial markets have pulled back from four-month highs today, as market participants consolidated gains produced over the past three trading sessions. With major stock indices sitting at such elevated levels, investors gave into temptation and booked profits. Last night’s cut to Greece’s outlook to negative by S&P didn’t help the tone, pushing sovereign bond yields higher- Spanish 10-year back above the unsustainable and dangerously high 7pc mark.

17.27 On a similar theme, our friends on the foreign desk have written this story about Spanish parents being charged three euros for packed lunches. Under new measures introduced by cash-strapped education boards, Spanish parents could be forced to pay to send their children to school with packed lunches. Fiona Govan in Madrid has the details:

Traditionally, Spanish children have eaten hot meals in the school canteen during a two-hour lunch break for a monthly fee paid for by parents that averages around 4.50 euros (£3.5) a day.

With the deepening crisis, which has left Spain with a 25 per cent unemployment rate and seen public workers salaries slashed, many parents are now opting to save money and send their children to school with homemade lunches.

However, when the new school year starts in September, parents will now find themselves subject to a daily fee of up to 3 euros depending on the region, even if they send children in with a homemade meal.

Families will have to stump up for “the relative cost for the use of the dining room and the supervision that entails”, state new guidelines to be issued by the education board of Madrid, according to information published in Spain’s El Pais newspaper.

17.19 AFP has this tale on the left-wing activists who looted supermarkets in Spain and filled trolleys with food to give to the needy in the recession. The newswire reports that the Spanish government has issued arrest warrants for the activisits, including their leader - Juan Manuel Sanchez Gordillo, who is a member of the regional parliament for the United Left party in Andalucia, southern Spain. AFP reports:

The group raided two supermarkets in Andalucia, a region particularly hard hit by a recession brought on by the collapse of its major construction industry. Andalucia's unemployment rate is nearly 34 percent.

They filled trolleys with packets of food such as pasta, oil and biscuits, to give out to the poor who they say do not have enough money to feed themselves in the economic crisis.

The ministry issued "an arrest warrant against the people involved in yesterday's looting, because there was a complaint by Mercadona," a chain of giant supermarkets, a spokeswoman said.

15.45 A map from the IMF showing where the impact of a euro area bank credit crunch would be felt most:

15.04 Otmar Issing, one of the founding fathers of the euro and a former European Central Bank chief economist, says some states may not be able to remain in the currency bloc in the long term but Germany would be better off staying in.

In his book How We Save The Euro And Strengthen Europe, which was published this week and is written as a dialogue between the German economist and a journalist, Issing said a euro collapse would have severe consequences.

Everything speaks in favour of saving the euro area. How many countries will be able to be part of it in the long term remains to be see.

Asked in the book how strongly he was concerned about the euro, he said:

Much more strongly than I could have ever imagined. We are still a long way off saying 'that's it, now we are sure to make progress'. Substantial reforms in almost all countries are still pending... One should focus on bringing the euro back to what it was meant to be, a stable currency, stabilised by an independent central bank, which follows a clear mandate, nothing else, and that the other protagonists, especially national governments, do their homework.

"There is no quick fix and anything in the direction of [jointly-issued] euro bonds or something similar would mean for me the end of the stability-oriented currency union.

"The less politicians address the root of the problems, the more they look with their expectations and demands to the ECB, which is not made for this. It is a central bank and not an institution to rescue governments threatened by bankruptcy. A central bank always also acts as a lender of last resort for the banking system - but it does not rescue governments.

"Exaggerated expectations alone can harm the prestige of the institution.

14.56 Jean Claude Juncker, head of the EuroGroup, has told German public broadcaster WDR that “some Greek newspapers treat German chancellor Angela Merkel as if she were the successor of the Nazis".

14.31 US markets have opened. Dow down 0.2pc, Nasdaq down 0.4pc, S&P 500 down 0.2pc.

14.29 Tomorrow marks the fifth anniversary of the start of the credit crisis, when French Bank BNP Paribas announced that two of its hedge funds were frozen because of a "complete evaporation of liquidity".

Commenting on this milestone, Owen Tudor, spokesperson for the Robin Hood Tax campaign, has hit out at the bankers who sparked the crisis:

Britain remains a playground for bankers who pocket billions at the public's expense. They continue to act as if the rest of society owes them a living.

"Slapped wrists and stern words have done little to rein in the scandal-ridden sector – the Government must do more to ensure their City chums pay back their debt to society. It's outrageous that the Government continues to pamper the banks whilst raising taxes and cutting services for the poorest.”

In the bond markets, Spanish 10-year yields are up to 6.845, Italian yields are down a touch to 5.927.

14.07 Spain has raised this year's budget deficit targets for the government and the welfare system amid a worsening recession and the rising cost of regional bailouts.

The goal for the state and the social-security system combined is 4.5pc of gross domestic product, according to a presentation sent to the European Commission that the Budget Ministry posted on its website. Under previous targets for this year, social security was to be balanced, while the state forecast a deficit of 3.5pc, Bloomberg reported.

13.50 Former ECB governing council member Lorenzo Bini-Smaghi has called for a solution that would "fix" the sovereign debt crisis.

A request for assistance from the eurozone’s rescue funds could be further de-politicised by setting a threshold, in terms of bond spreads (for instance 200 bps, as in the Maastricht convergence criteria), beyond which the procedure would be triggered in a semi-automatic way. This would be analogous to the excessive deficit procedure, which also implies strict conditionality and monitoring and is launched as soon as deficits rise above 3pc.

13.43 Greek government officials were to continue talks today aimed at identifying €11.5bn in budget cuts for 2013 and 2014, but the proposed resurrection of a so-called labour reserve scheme aimed at putting thousands of civil service on reduced wages ahead of a status review appeared to pose a serious stumbling block to progress, Ekathimerini reported.

The leader of the third party in the coalition government, Fotis Kouvelis of Democratic Left, appeared to be particularly opposed to the measure which authorities have attempted to implement several times without success. "The measure was a fiasco, I will not support a fiasco," Kouvelis told reporters.

13.31 Labour costs in the US have soared 1.7pc, much higher than an expected rise of 0.5pc.

13.00 Japanese Prime Minister Yoshihiko Noda has reached an agreement with the two largest opposition parties to pass legislation raising the sales tax through the upper house of parliament.

Noda has been pushing to double the 5pc sales tax by 2015.

12.53 Federal Reserve Bank of Dallas President Richard Fisher says inflation is not a problem in the US and cautions against overplaying "our hand".

He adds that adequate economic stimulus is in place and that global central banks may not have the capacity to undertake additional measures. "We should avoid creating an impression that we can solve all te problems, we cannot."

12.46 Gerard Lane at Shore Capital on the BoE's inflation report:

Interestingly when questioned about debt cancellation or monetary policy interaction with the fiscal stance the Governor highlighted it was not in the remit of the Bank to take such decisions unilaterally. Government debt cancellation and fiscal and monetary coordination will require greater ambition than seen to date, in our view, but remain weapons of last resort were the economic situation to continue to remain poor, either ahead or after the next General Election.

12.34 Italian PM Mario Monti is working on a plan to cut the country’s €1.9 trillion public debt, head of the Union of Centrists party Pierferdinando Casini said after meeting with the premier.

The plan could be put in place as soon as September.

12.02 Former MPC member Danny Blachflower still throwing punches at his former employers:

&lt;noframe&gt;Twitter: Danny Blanchflower - mpc downgraded their growth forecast again but it was obvious when they made them they were far too optimistic so not good enough&lt;/noframe&gt;

11.57 Quick update on the markets:

FTSE 100 -0.5pc

CAC -0.5pc

DAX -0.4pc

IBEX -1.7pc

MIB -0.2pc

In the bond markets, Spanish 10-year yields are up to 6.849, Italian yields have fallen slightly to 5.921.

Spain has said it sees its 10-year yields at 6.4pc this year and 5pc in 2013.

11.44 Seemingly in direct contrast to the post at 11.20, Spain has not as yet formally submitted a request to activate an EU emergency aid programme for its banks, the European Commission has said.

The door is clearly open to more stimulus and we still expect both more QE and a further interest rate cut in November.

Brian Hilliard, Societe Generale:

There were no surprises. I don't think this gives us any new indications. We had expected a downward revision in growth. It's too soon to say whether there will be an impact on Britain's [credit] rating.

11.29 King: I do not believe US regulators are engaging in a trade war against UK banks. UK authorities would ask that US regulators work together and refrain from public statements before investigations are complete.

And with that the briefing is over.

11.20Bankia and other bailed-out Spanish lenders may receive their European rescue funds sooner than the September date previously planned, a government source told AFP.

We are working on the demand for funds for Bankia. The deadlines are open. There is an installment of €30bn and a possibility of an earlier injection. We are working on that for Bankia and the rest of the nationalised banks.

11.19 Here is the Bank of England's full inflation report:

11.18 Bank of England Deputy Governor Charlie Bean says UK productivity since the financial crisis is "way out of line" with past experience.

11.06 King: In 2008, we would have expected banks to be in a better place today.

On Libor he says that there is a need to ensure existing sytem keeps going to support existing contracts linked to rate. He adds that investigating Libor fraud is a job for the FSA and SFO, not Bank of England. It no longer makes sense to have a single panel to set an interbank lending rate.

On Standard Chartered, King says if there has been wrongdoing then there should be action.

German industrial production falls 0.9pc in June from previous month's 1.6pc rise.

10.59 King: "We have not cut Bank Rate [from record low of 0.5pc] because it would be counter-productive and hurt building society sector. But a quarter-point change of Bank Rate is not going to be the difference between recovery and non-recovery."

Telegraph's Angela Monaghan:

&lt;noframe&gt;Twitter: Angela Monaghan - King says another 0.25 point cut in interest rates would be 'neither here nor there' and not enough to drive recovery. But leaves door open&lt;/noframe&gt;

10.56 King says second quarter GDP figures was not a realistic representation of underlying growth. Big factors that have hurt UK have come from abroad, not from spending cuts. There are certain things central banks cannot do, we cannot create money just to give it away. He adds that he does not believe asset purchases are having a dminishing effect.

The Bank of England's growth forecasts are almost always overoptimistic, so subsequent downward revisions have become the norm for many years. This in itself isn't news. Unfortunately for the UK economy, the Bank's latest projections for economic output in 2012 of zero growth, and of average growth thereafter of around 2.5pc per year, while weaker than in the last Inflation Report in May, still almost certainly lie on the optimistic side.

"Although yesterday's (still awful, if slightly better than forecast) industrial output data imply that the provisional ONS estimate of a 0.7pc contraction in second-quarter GDP will prove a little too bearish, the underlying weakness of the economy is all too evident. Barring a dramatic fiscal stimulus U-turn from the government in the next few months - the actions of the chancellor, George Osborne, would suggest the probability of such a shift ranges from very slim to non-existent - UK economic output is on course to contract by at least 0.5pc in 2012.

10.50 Sir Mervyn King:

We know what the underlying problems are in the eurozone but we will have to see how they are tackled. Our overall outlook for the eurozone has not changed over the past three months. The underlying problems are still there.

10.48 Output has been flat over the past two years die to eurozone crisis and squeeze on takehome pay from inflation, King says. He adds that UK fiscal policy, including automatic stabilisers, are exactly right.

10.45 King says he is very clearly focused on avoiding a situation where broad money supply falls away sharply.

10.42 King says UK will get back to growth rates seen before credit crisis but it will take time to acheive this. He says he can't predict how the eurozone will affect demand for UK exports or global economic confidence. Balanced risks to inflation at end of forecast horizon do not suggest the need for urgent action.

10.40 Here's what the pound did against the dollar after the release of the Bank of England's report:

And euro versus the pound:

10.36 King adds that eurozone recession is damaging demand, and a black cloud of uncertainty is hanging over investment. Weaker euro is further obtacle to economic rebalancing. Recovery and rebalancing of UK economy is likely to be a long and slow process.

10.33 King says rise in bank funding costs has been a major worry for the MPC. Early indications for Funding for Lending scheme are positive. UK economy will continue to face headwinds from austerity and eurozone. Economic output has been flat over past two years.

09.39 Ilya Spivak, currency strategist at DailyFX, on the BoE's report this morning:

The document is likely be relatively thin on near-term policy prescriptions as Mervyn King and company remain in wait-and-see mode to gauge the impact of the recently unveiled ECTR and FLS programs. The deterioration in UK economic data since the last report is likely to skew the tone toward the dovish side of the policy spectrum, which may reboot stimulus hopes and cap losses.

09.21 Last night, S&P cut Greece's outlook to negative from stable. The ratings agency said the economy in the crisis hit nation was worsening and it was likely to need yet more funding. It also stated that political challenges could soon force another downgrade. S&P said in a statement

The negative outlook reflects the potential for a downgrade if shortfalls in Greece's 2012 deficit and arrears targets established under the current EU/International Monetary Fund program are not met by new funding or other relief. We see the likelihood of shortfalls, owing to election-related delays in the implementation of budgetary consolidation measures for the current year, as well as the worsening trajectory of the Greek economy.

09.12 France's central bank is expecting the country to slip into recession during the third quarter.

The Banque de France said that its preliminary figures show that gross domestic product will be down 0.1pc in the third quarter, which ends on September 30. The bank had already predicted that GDP would fall the same amount in the second quarter.

09.09 All eyes on the Bank of England this morning. It's report due out at 10.30am. The National Institute of Economic and Social Research said the British economy shrank by 0.2pc in the three months to the end of the July.

The think-tank estimated the economy grew by 1.4pc in July alone, but senior research fellow Simon Kirby said the number was “flattered” partly by a rebound in activity following the work lost over the Jubilee bank holiday weekend in June.

08.55 German exports slowed by 1.5pc in June - analysts expected a 1.3pc fall. Imports dropped 3pc, against a 2pc prediction.

08.53 In the bond markets, Spain's 10-year yields have risen to 6.816pc, Italy's up to 5.958pc.

08.51 European markets are down this morning:

FTSE 100 -0.5pc

CAC -0.4pc

DAX -0.4pc

IBEX -0.2pc

MIB -0.2pc

08.35 In the Financial Times this morning, Italian PM Mario Monti has been urged to go it alone and use vast, dormant resources to cut debt rather than become a hostage to German demands. Giulio Santagata, a former minister, said:

Before we end up like the Greeks we want to show we are able to save ourselves.

The M1 data measure cash and overnight deposits and are a leading indicator of industrial output six months ahead. They give some comfort that the latest growth scare will stop short of outright slump, the point where “feedback loops” set off a self-feeding downward slide.

Mr Ward said global industrial output should start to “bottom out” by October. The rebound is a huge relief to monetarists following the sudden collapse of M1 growth from a peak of 5.1pc last November, a rare pace of decline with echoes of early 2008.